Footsie Fortunes

IN last week's commentary we warned that the FTSE 100 was flirting with the major support line at 4333. The price actually dipped below that trend-line intra-day and even closed below it on Wednesday of last week at 4309.

As a general rule, a close below a trend-line is more significant than just an intra-day penetration. However, as this trend-line has been in place for almost a year, a break is only confirmed on a 'significant' close below the trend-line.

In this case I believe that to be below 4300, which didn‘t quite happen.

Well, despite trying to breach this significant technical support, the market held and now looks even better than before. And here's why.

As the index tested the trend, it 'shook' weak long positions out of the market. Those traders who lacked discipline pulled the trigger too early, selling existing long positions and even worse, selling 'short', expecting the market to break significantly lower.

Now these traders are out of the market, it allows the index to rally back up into the channel, which is exactly what we've seen in the last three days.

Expect the index to continue upwards over the next couple of weeks, initially targeting the 4500 level and then looking for a healthy rally up towards the highs of two weeks ago at the 4570-80 area.

However, if renewed uncertainty returns and sellers attempt to force the index lower, a break below 4340 and then a close below 4300 will signal trouble.

Footise Fortunes is written by Simon Brown of Quantigma - a firm specialising in tools for technical analysis. It is regulated by the Financial Services Authority.
For information about courses in technical analysis, go to www.quantigma.net